The global crisis in the automotive sector dragged down underlying sales at GKN by a third during its first quarter, investors in the car parts and aerospace company were told at its annual meeting on Thursday.
But shares in the company closed flat at 139¼p after giving up early gains as investors took comfort from an uptick in March trading. GKN moved back into the black after a lossmaking start to the year as solid aerospace sales helped mitigate “extremely challenging” markets for private and commercial vehicles.
The ripple effect of the collapse in demand had seen GKN’s automotive sales, measured at constant currencies, fall by 49 per cent over the first two months, though this fall in sales narrowed to 36 per cent in March. With inventories largely exhausted and signs of car sales volumes reaching their trough, GKN hoped that year-on-year falls in demand for its parts could start to narrow into the second quarter, Sir Kevin said.
The company has also seen a fall in demand in its off-highway market – centred on vehicles used in agriculture and heavy industries such as mining – that was sharper than previously expected.
Performance in the aerospace sector had continued in line with expectations, though GKN is expecting a downturn in civil aircraft manufacturing to hit trading from the end of the year. GKN Aerospace, which now includes a contribution from its UK Filton business acquired at the beginning of the year, made a trading profit of £46m in the quarter, compared with a trading loss of £47m in GKN’s global automotive business.
In February, GKN reported a heavy loss and warned of 2,400 job cuts this year as car sales continued to rapidly decline. On Thursday Sir Kevin said GKN had not increased its headcount cutting target but added that the company has ahead of schedule with achieving these cuts, with 1,800 leaving the company during the quarter.
The company made a loss of £29m before exceptionals during the three months to March 31, though it had returned to profitability by this measure in March “after a particularly difficult first two months in the automotive sector”.
During the period GKN also bolstered its trading position by securing guaranteed payment for goods supplied to Chrysler and General Motors in the US through the government-backed supplier payment schemes.
Though sales to both companies were relatively modest at £8m during March, Sir Kevin welcomed moves by the US and other governments to ensure supply chain stability in the automotive sector.
In a note on Thursday, company brokers Cazenove upgraded the stock, saying: “We believe that the profitability of the group is approaching a cyclical low with the prospect of a sharp bounce in earnings likely in 2010.” GKN shares have fallen 55 per cent over the past year.
